India Diverts Rs 56,700 Crore From the Fight Against Climate Change to Goods and Service Tax (GST) Regime

INDIA’S biggest domestic source of public funds to push renewable energy and protect the environment has become a victim of the Goods and Services Tax. In April, the government included the tax collected on production and import of coal to the GST schedule. With this move, the tax, which was funnelled into the National Clean Energy and Environment Fund, was diverted to compensating the states that stand to lose revenue as a consequence of the GST. Now, the finance ministry’s responses to Scroll.in’s queries under the Right To Information Act, 2005, show even the unspent funds lying in the National Clean Energy and Environment Fund have been diverted.

The unspent funds amount to Rs 56,700 crore. A steady stream of funds for clean energy, amounting to more than Rs 1 lakh crore over next five years will also dry up from next financial year. Indeed, from next year, India will not have the National Clean Energy and Environment Fund. “Basically, the fund is now dead wood,” a senior finance ministry official said. ”The concept of non-lapsable pool is a misnomer in the Indian system. We have several such funds with dedicated purposes. But there are so many demands on our limited resources and a reassessment of priorities is done each year. The money collected so far in the clean energy fund and remaining unspent will go towards compensating states.” The official did not want to be identified. Generally, such dedicated funds linked to a specific cess are classified as “non-lapsable”. If the cess collected in a financial year remains unspent by the end of the year, it is retained separately for future use against the specific purpose. It cannot be subsumed into the general pool of revenue for the central government to use at its discretion. But the Bharatiya Janata Party-led government has decided to use the unspent money from the clean environment fund for other purposes.

The resulting hit to the Indian impetus towards a greener economy will be huge. Apart from the Rs 56,700 crore already collected but not spent, Rs 29,700 crore was expected to be collected through cess in 2017-’18. That is more than double the budget of the Narendra Modi government’s flagship Skill India Mission. “Morally, this [diverting coal cess to GST implementation] is not correct,” said Rita Pandey, environmental economist and professor at the National Institute of Public Finance and Policy in New Delhi. “A cess drawn from one sector cannot be earmarked for another. A cess on coal has to be ploughed back into the energy sector. The decision shows the government’s inability to manage this fund. We have argued in the past that apart from funding the renewable energy sector, the coal cess should be used to support innovation in the clean coal technologies as well.”

Clean-Up Act

The coal cess, also known as the Clean Energy Cess, and the linked fund were created in 2010 by the Congress-led government, which imposed a cess of Rs 50 per tonne to begin with. The idea was simple: the government taxes production of coal because burning coal leads to increased emissions of carbon dioxide gas, which is the biggest culprit causing climate change. By putting an additional tax on coal, the price of dirty energy goes up. This gives renewable and clean energy a level field to compete financially against fossil fuels. Fossil fuel prices have traditionally remained low because governments do not include the cost of consequent air pollution and public health crisis when determining the selling price of these fuels. The cess would not only increase the price of coal, the previous government had decided, the fund created from it would be used to support research and development of clean technologies.

When the BJP-led government took office, it raised the cess from Rs 50 to Rs 100 per tonne in 2014. The rate was doubled to Rs 200 per tonne in 2015 and to Rs 400 in 2016. This won the government praise from environmentalists globally and helped it claim pole position at the Paris climate change negotiations as well. Naturally, the clean energy fund kitty swelled rapidly with the eight-fold increase in cess over just three years. By the beginning of this financial year, the government had collected a humongous Rs 56,740 crore. That’s more than 20 times the current budget of the Ministry of Environment, Forests and Climate Change.

But here the story takes an unfortunate turn. Of the total cess collected from 2010 to 2017, the government allocated only 37% to the National Clean Energy and Environment Fund. It spent even less – under 30% – on clean energy and environmental projects. The rest lay unused. In response to RTI applications by Scroll.in, the finance ministry said: “The GST provides that coal cess, along with some other cess...would constitute GST compensation fund and the same would be utilised to compensate the states for five years for potential losses on account of GST implementation. After five years any amount left would be shared on 50% basis between the Centre and states.”

What could be the consequences of this decision? “There are about 55 ongoing projects that were being funded through the fund,” the finance ministry official explained. “To keep them going we shall have to allocate money from the general revenue pool. But this fund for now is over. After five years the government can rethink if it wants to spend 50% of the cess collected again for renewable energy and environment. But that is then. Five years is a long time.”

Bleak Outlook

This is not the first time the government has tinkered with the logic behind creating the fund, though earlier it was mere tinkering. In the 2016-’17 budget, it renamed the Clean Energy Cess as Clean Environment Cess, and in March this year the linked Clean Energy Fund was renamed Clean Energy and Environment Fund. This was done to fund a host of other categories of projects apart from clean energy – nuclear energy projects under the Department of Atomic Energy, green technology in the Smart City Mission, Ganga rejuvenation, and drinking water and sanitation, among others.

As it stands, the death of the fund next year will pose the biggest challenge to the Ministry of New and Renewable Energy. In this financial year, the fund provides over 98% of the ministry’s budget and greatly helps meet India’s commitments in the Paris Climate Agreement. An end to this fund will require the government to finance the works of the renewable energy ministry from its general corpus of revenue. In the three years of the existence of the fund, the government needed to provide only about Rs 800 crore to the ministry from this general corpus.

The impending loss of the fund has the ministry worried. “The Department of Expenditure, Ministry of Finance, has informed that in view of the implementation of GST...the fund may not be available from NCEF to finance RE projects,” the ministry informed the Parliamentary Standing Committee on Energy in March, referring to renewable energy. The committee noted that unless additional allocation was made to the ministry, implementation of its various programmes “will be seriously affected”.

In the past, critics of the clean environment cess and its linked fund argued that the government did not have the capacity to use the large sums coming in. However, the ministry’s data shows the spending capacity actually improved over the last two years, when the government expanded the scope of the fund’s utilisation – 100% of the money was spent.

India has for long argued at international forums that the developed world is obligated to provide public funds to poor countries to fight climate change. But after the United States walked out of the Paris Agreement this year, New Delhi reiterated its commitment to the global agreement and declared that it would do so by using its own resources if the global community fails to meet its obligations. With the US reneging on its commitments, the clean energy fund would have come in handy when India starts to meet its targets under the agreement in 2020. But in the implementation of the GST, the country’s fight against climate change has become collateral damage.